Finance Week 1 Problem Sets (2015)

| June 7, 2016

Question
Week 1 Problem Sets

Part 1
•Exercise 1-9A on page 40
Exercise 1-9A Components of the accounting equation
Jones Enterprises was started when it acquired $6,000 cash from creditors and $10,000 from
owners. The company immediately purchased land that cost $12,000.
Required
a. Record the events under an accounting equation.
b. After all events have been recorded, Jones’s obligations to creditors represent what percent of
total assets?
c. After all events have been recorded, Jones’s stockholders’ equity represents what percent of
total assets?
d. Assume the debt is due. Given that Jones has $10,000 in stockholders’ equity, can the company repay the creditors at this point? Why or why not?

•Exercise 1-10A on page 40
Exercise 1-10A Components of the accounting equation
Common Retained
Assets 5 Liabilities 1 Stock 1 Earnings
Allen $10,000 5 $7,500 1 $2,000 1 $ 500
White $12,000 5 $3,000 1 $7,200 1 $1,800
Required
a. Based on this information alone, can you determine whether White can pay a $2,000 cash
dividend? Why or why not?
b. Reconstruct the accounting equation for each company using percentages on the right side
of the equation instead of dollar values. Which company is more financially stable? Why?
c. Assume Allen incurs a $3,500 operating loss. The remaining assets are sold for the value
shown on the books, and the cash proceeds are distributed to the creditors and investors.
How much money will be paid to creditors and how much will be paid to investors?
d. Assume White incurs a $3,500 operating loss. The remaining assets are sold for the value
shown on the books, and the cash proceeds are distributed to the creditors and investors.
How much money will be paid to creditors and how much will be paid to investors?

•Exercise 1-4A on page 38
Exercise 1-4A Missing information in the accounting equation
Required
Calculate the missing amounts in the following table.
Stockholders’ Equity
Company Retained
Company Assets 5 Liabilities 1 Stock 1 Ear n ings
A $ ? $25,000 48,000 $50,000
B 40,000 ? 7,000 30,000
C 75,000 15,000 ? 42,000
D 125,000 45,000 60,000 ?

•Exercise 1-7A on page 39
Exercise 1-7A Missing information and recording events
As of December 31, 2016, Moss Company had total cash of $195,000, notes payable of $90,500,
and common stock of $84,500. During 2017, Moss earned $42,000 of cash revenue, paid $24,000
for cash expenses, and paid a $3,000 cash dividend to the stockholders.
Required
a. Determine the amount of retained earnings as of December 31, 2016.
b. Create an accounting equation and record the beginning account balances under the appropriate elements.
c. Record the revenue, expense, and dividend events under the appropriate elements of the accounting equation created in Requirement b .
d. Prove the equality of the accounting equation as of December 31, 2017.
e. Identify the beginning and ending balances in the Cash and Common Stock accounts. Explain why the beginning and ending balances in the Cash account are different but the beginning and ending balances in the Common Stock account remain the same.

•Exercise 1-6A on page 39
Exercise 1-6A E f fect of transactions on general ledger accounts
At the beginning of 2016, Better Corp.’s accounting records had the following general ledger accounts and balances.
BETTER CORP.
Accounting Equation
Acct. Titles
Event Assets 5 Liabilities 1 Stockholders’ Equity for RE
Notes Common Retained
Cash Land Payable Stock Earnings
Balance
1/1/2016 10,000 20,000 12,000 7,000 11,000
Better Corp. completed the following transactions during 2016:
1. Purchased land for $5,000 cash.
2. Acquired $25,000 cash from the issue of common stock.
3. Received $75,000 cash for providing services to customers.
4. Paid cash operating expenses of $42,000.
5. Borrowed $10,000 cash from the bank.
6. Paid a $5,000 cash dividend to the stockholders.
7. Determined that the market value of the land purchased in event 1 is $35,000.
Required
a. Record the transactions in the appropriate general ledger accounts. Record the amounts of
revenue, expense, and dividends in the Retained Earnings column. Provide the appropriate
titles for these accounts in the last column of the table.
b. As of December 31, 2016, determine the total amount of assets, liabilities, and stockholders’
equity and present this information in the form of an accounting equation.
c. What is the amount of total assets, liabilities, and stockholders’ equity as of January 1, 2017?

•Exercise 1-8A on page 39
Exercise 1-8A Account titles and the accounting equation
The following account titles were drawn from the general ledger of Holt Food Supplies, Incorporated (HFSI): Computers, Operating Expenses, Rent Revenue, Building, Cash, Notes Payable,
Land, Utilities Payable, Utilities Expense, Trucks, Gasoline Expense, Retained Earnings, Supplies, Accounts Payable, Office Furniture, Salaries Expense, Common Stock, Service Revenue,
Interest Expense, Dividends, Supplies Expense.
Required
a. Create an accounting equation using the elements assets, liabilities, and stockholders’ equity.
List each account title under the element of the accounting equation to which it belongs.
b. Will all businesses have the same number of accounts? Explain your answer.

Part 2
•Question 1: What is the accounting equation? Why is this important to the practice of accounting? Please provide an example of how the accounting equation works with recording transactions within a business.
•Question 2: Is there a difference between bookkeeping and accounting? Discuss.
•Question 3: Accounting reports past performance. How can this be useful when planning future operations?

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